Recommend using the fibonacci levels tool in preference to S/R. First read âElliott Wave Principle : Key to Market Behavior' by Frost and Prechter, originally published in the 1970s, last edition is 1990. Text provides an understanding of price movement formations and how the fibonacci ratio is applied. The next ET 'chat' session should be very instructive.
Contrary to popular belief . . . Support and Resistance are specific price levels created in any Market. There are two types of Support and Resistance, Prime (Extreme) & Minor (Inbetween Primes). Support & Resistance CAN NOT be calculated with ANY accuracy using ANY Fib formula, Elliot theory, Gann theory or any other varible method of Market Price interpretation. The perfection of Prime Support and Resistance is having the ability to CONFIRM it IS Prime Support or Resistance IMMEDIATELY as it is happening. Minor is harder to determine IMMEDIATELY and that is why it is Minor.
Actually, they don't. Sorry. Support and resistance are provided by prices paid, unless one wants to come up with new definitions of them, in which case the terms wouldn't mean much. Moving lines can't provide support or resistance. If they seem to, it's only because the chartist is looking at the wrong thing.
Guess we're going to have to disagree on this one. Or maybe I'm not understanding your terminology. "Support and resistance are provided by prices paid.....": db, are you saying these prices are not occurring along trendlines? db, you're undoubtly one of the best posters on ET, but for one to proclaim that price action doesn't very often bounce off of trendlines is absurd. Maybe I'm not understanding you here.
Prices bounce off all sorts of things, but that doesn't make all of them support and resistance. Support is provided by a great many people having paid more or less the same price for something over time. When price inevitably begins to fall, they aren't going to sweat because price is approaching some line of whose existence they aren't even aware; they're going to sweat because price is approaching what they paid. They're going to sweat even more when price drops below what they paid.
S and R is largely determined by viewing price and volume charts from the viewpoint of owners of both long and short positions. Potential participants who may enter are facing these "holders" All transactions take place by agreement only on price and no agreement on all other aspects. Volume velocity is the key measure of the agreement phenomena. BSAM and Socal Trader point out the importance and aspects of volume S and R are affected mostly by the change of ownership over time. That is to say, it is an issue of "turn over". The period for one turn over varies by the number of participants and the volume that they create. Traders vary greatly in how long they hold to make a cycle of profit (loss). So periodically, you need to refresh your values of S and R. You will see that most books, approaches, and narratives of the markets deal on "levels". This implies sets of horizontal lines, etc. To get this stuff understood and to give it utility to make money, you can look at price and volume over time to be sure to include enough time for "turnovers" (more than one is better). Osman deals with a method to deal with this. Definitions ( like Profit Logic) help to create a focus. The "how to" does not come from definitions alone. Some people strike out on the "how to" because they do not have things understood (primarily from mistaken myths that they believe). See misunderstandings by DKT, DBPhoenix and Wallace. Others have presented the cautions on these items. Don't go there. By looking at historical charts, you get to learn how to determine the S and R and little s and r's too. Agreements on price by numbers of people determine where the market may operate and where it may not. You can scope this out by regarding all possible periods of "positioning" by all participants. these are the "envelopes" you can scribe on all fractals. The bounds narrow as you choose to focus on the faster and faster traders. Different traders, of course, have differing S and R limits. These are usually defined by the periodicity of their trading. Making money is not difficult if you operate with limits such as S and R and you know how to follow trading as it comes to these limits. you trade opposite to "whipsaw" type loser traders. S and R eliminate the "falling off the edge of the earth" concept. I look, always, at three levels of S and R. Strong price agreement over a range of prices creates movement over that range. Nice fast paced channels result. High money velocity profits as a result of pleasant staedy unidirectional movement. BUT, you see strong volume at places where price does not move much at all. Here periodic and frequent volume surges move price to limits for strong volume. Lots of agreement and a return to a stationary point. A lateral trading channel appears as a result of repeated testing of a limit. Low volume is never at any of these limits. The "how to" comes down to one effort that can be done in advance of the time you trade. A good example recently was the FOMC "greenspan" move a couple of weeks ago. Both the high and the low of the swings hit he R and S respectively that you would have on you chart. Yesterday the trading followed suit simarly with respect to the ovdeernite H/L. To have S and R bounded at all times on all levels, use channels for the LT, IT, Daily, and intraday. The "four crow" post is an example of a channel ending at R (failure to traverse), point 1 forming and the next intraday channel commencing. Channels are cut off at R (flat top pennant failure) and S (Flat bottom pennant failure). Between R and S pennants are neat trend resumption formations (end of left to right traverses at right trend line. By having all R's and S's scoped out as channels for all fractals, you know in davance where the successively faster channels are going to end. Thus, you can reverse at price extremes and NEVER EVER do the "whipsaw" game that losers do all the time. Do not follow nor depend upon the poor references in this thread.
Old timers know this, but for newbies... break in support is future resistance, and upside breakout area is future support. Watch out if breakout fails, i.e. comes back below breakout area or goes above breakdown area.
I believe dbphoenix is making a mess of things. I am specifically oriented to making money and not doing history lessons after the fact or rationalizations of what happened. My orientation in ET is to contribute strong support to those who are working hard to improve. I have no interest in critiquing stuff that is "out of order"; there is a pethora of "out of order" stuff here in ET. Once in a thread where dbphoenix and another (steve46) really blew it on price and volume, I did post to eliminate his line of thinking. S and R are important. They are defined and seen as market operations. You can "see" S and R. It is dynamic and not a set of simple "levels".
When using S&R's it is best to use levels from Daily, Weekly and Monthly. As well as MA's of the Daily and Fibs. Areas of key S & R are where these tend to bunch up. For example Yesterdays low is the same as last weeks low and a low 2 months ago. Also this is the level of the 50DEMA. This group of support should hold and if it does not it would be a great Short because a bunch of stops will be hit if the support fails. When you see bunching of S/R levels be ready to go Long if it holds and Short if it does not. You may want to try using Trade Prospector Real Time. Al the Support and Resistance Lines are displayed on the chart for you. The down side to TPRT is that they still use QCharts for the data feed which works well some days and some days does not. But it can provide a real education of support and resistance.